It’s Incurred Cost Proposal Season!

SynopsisAs soon as tax day passes, many Government contractors move right into incurred cost submission preparation. Any contractor having a Government contract containing FAR Clause 52.216-7, Allowable Cost and Payment, is required to submit an Incurred Cost Proposal (ICP) within six months of the contractor’s fiscal year end. The proposal is used in determining how much the contractor can bill the Government on any flexibly priced contract. It also establishes the contractor’s annual final indirect rates and is an essential procedure for many in Government contracting.

Issue Preparation of the ICP can be time-consuming and varies depending on the size of the contractor and the complexity of their rate structure. The Defense Contract Audit Agency (DCAA) website includes a downloadable Microsoft Excel template for the submission, called the Incurred Cost Electronic (ICE) model. It is not mandatory to use the ICE template, but its use does help to ensure that all required information is submitted in the Government preferred format. It includes a summary of indirect costs by pool, as well as direct and indirect cost application by contract.

In addition to final indirect rates and contracts costs, the submission also includes details on intermediate pools, subcontracts, payroll, prior year comparatives, executive compensation, and more. Once submitted, auditors perform an adequacy check (also available on the DCAA website) to confirm that all schedules reconcile and that sufficient information has been supplied to begin the audit. Submissions that are found to be inadequate, often for minor infractions, are returned to the contractor for revision. Proper submissions move forward in the review process.

The audit process is often lengthy. Once an ICP submission is deemed adequate, it can sit for several years while DCAA catches up on its backlog. Occasionally, submissions deemed low risk will be passed without a visit from DCAA. Other contractors may find that multiple contract years are reviewed at one time. Typical audits include a site visit from DCAA. The more organized the contractor is, the more smoothly the review will proceed. Completed audits result in final indirect rates for the year(s) audited and the contractor is then able to issue final bills for contracts completed in those years.

What does CohnReznick Think?
Affected Government contractors with a December 31 fiscal year end should submit their 2015 ICPs no later than June 30, 2016. Preparing the submission can be challenging, especially if your submission is found to be inadequate. CohnReznick has extensive ICP preparation and review services expertise and can help you prepare and submit your ICP with the least possible disruption.